One Important Reason to Study the Purchasing Power Parity Theory

question 1

Multiple Choice

One important reason to study the purchasing power parity theory is because

• A) investors should borrow in a foreign currency, when there is a forward discount.
• B) when inflation rates differ across international borders, PPP provides a baseline forecast of future exchange rates.
• C) forecasting exchange rates is difficult and PPP makes it easier.
• D) it provides currency dealers with a way to identify arbitrage opportunities.

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Definitions:

Calories

Units of energy that measure the amount of energy food provides to the body when consumed.

Fat

A nutrient consisting of triglycerides that is one of the primary sources of energy for the body and is also vital for insulating the body and protecting organs.

Convulsions

Sudden, involuntary muscle contractions and relaxations, often symptomatic of a neurological condition.

Deficiency

A lack or shortage, particularly of nutrients or essential substances in the body, leading to health issues.